Securities Activities of Banks in the GLB Era - Cleary Gottlieb Steen ...

not involved in the implementation of the transaction
or supervision of the relevant business unit) should
approve the structure of a transaction. It will be
important to focus on what a transaction is trying to
accomplish (with special attention to conflicts of
interest) in evaluating its propriety.
e. In terms of the potential liability of a financial intermediary
for legal violations by counterparties in the context of complex
structured finance transactions, there are two possibilities: an
intermediary can become secondarily liable by taking actions
which “aid and abet” the violation, or it can be so involved
that it becomes primarily liable as a principal. 26
(i) In general, there is no private right of action based on
“aiding and abetting” theories. This does not preclude
SEC action, however, under circumstances where there
is (A) a violation by another party, (B) a general
awareness or knowledge by the aider and abettor that
its actions are part of an overall course of conduct that
is improper, and (C) substantial assistance by the aider
and abettor in the violative conduct.
(ii) Cases against financial institutions for primary liability
can occur if the conduct of the intermediary --
including structuring, packaging, or executing the
fraudulent transactions -- goes beyond mere general
awareness and assistance to the primary violator.
(iii) If a financial intermediary is a public company and an
attorney representing the company becomes aware of
potential liability like that described, the SEC’s
26 See, e.g., Board Supervisory Letter SR 04-7 (May 14, 2004), CCH Fed. Banking L.
Rep. 62-164 (“SEC Guidance on the Potential Liability of Financial Institutions for
Securities Law Violations Arising from Deceptive Structured Finance Products and
Transactions”).
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